Shares in the Queensland state-based company tumbled almost 16 percent to AU$11.25 on Tuesday after the suitor, based in St. Louis, Missouri, said it would now turn its attention elsewhere. The slide continued by more than 1 percent on Wednesday.

Macarthur said in a statement on Tuesday that based on the price and conditions of the Peabody offer, it "cannot reasonably be recommended to shareholders."

Macarthur said its board thought there was no basis for further talks with Peabody, one of the world's largest coal suppliers, about its current proposal.

Peabody replied that it was disappointed by the Macarthur board's rejection, "denying its shareholders the opportunity to vote for the transaction."

"Peabody looks forward to advancing its internal growth projects and continuing to pursue other value-added investments to serve high demand markets," Peabody said in a statement.

Peabody last week took the unusual step of reducing its offer from AU$16 a share to AU$15 a share, saying the revision was due in part to a proposed new Australian tax on mining profits.

The government angered the mining industry last month by announcing a new 40 percent tax on the booming profits of resource companies from 2012.